April 2 (Reuters) - Business confidence in Germany's chemical industry dropped sharply in March, an Ifo survey showed on Thursday, as the war in the Middle East weighed on the market outlook and increased the risk of job cuts.
The Ifo institute's index for the sector dropped to -25.0 points from a seasonally adjusted -16.7 points in February, while business expectations turned more pessimistic, sliding to -17.9 points from -12.1 points.
"The consequences of the military hostilities in the Middle East are hitting the already struggling chemical industry with full force," Ifo industry expert Anna Wolf said.
Surging energy prices are hitting the chemical sector particularly hard because it depends on crude oil and natural gas both for power and as feedstocks, such as naphtha, Wolf told Reuters in an email.
Supply shocks and price increases therefore hit the sector twofold, with higher chemical costs passed on to many downstream industries, which amplifies pressure across German manufacturing, Wolf added.
Disruptions to oil and petrochemical flows through the Strait of Hormuz have tightened global chemical supplies, highlighting the industry's vulnerability to energy shocks and pushing prices of plastics and polymers to around four-year highs.
JOB CUTS A WAY TO ABSORB PRESSURE
"Companies can scarcely influence the difficult conditions, so the only room for maneuver they have left is to cut jobs," Wolf said, adding that employment expectations also dropped to an all-time low of -32.1 points in March.
While some companies still have limited room to adjust, others are under pressure so extreme that their production sites may be at risk, she said, without naming specific companies.
Germany's seasonally adjusted jobless rate remained unchanged in March, but the absolute number of those unemployed remained above the politically important 3 million mark for the third month in a row.
(Reporting by Anastasiia Kozlova and Amir Orusov, Editing by Friederike Heine and Milla Nissi-Prussak)
By Anastasiia Kozlova and Amir Orusov
